Beyond the Numbers Issue 2 by Nexia Auckland (formerly Hayes Knight)

issue two summer 09

04 Post-recessionary times

05 Succession strategies

14 Innovation showcase

Success in sustainability

Joint ventures and amalgamations

Kudos for clever clients

beyond the numbers

| keeping your business future fit

Sustainability at work Greening our new Audit building upturn 9 The is coming Are you ready?

for 10 Preparing new growth

Omni Products branches out

Good governance Updating your business structure

issue TWO

contents

beyond the numbers

| keeping your business future fit

Features

Stay informed

2009 rolls on, continuing to present new and unexpected changes and challenges. As predicted, it’s been the winter of our discontent for many. However, it’s great to see client organisations that, like the team at Hayes Knight, don’t buy into the doom and gloom. Instead they remain positive and committed to excellence, giving themselves the best shot at success by objectively assessing the changes, then ensuring they’re in the best shape to use these as opportunities. This issue has some great examples of how Hayes Knight clients are ensuring they remain future fit and ready for the market upturn. You can’t safely navigate a ship if you don’t have the right controls and a clear view from the bridge. Similarly, organisations need a governance structure that helps them control and assess the future path. This will mean different structures for different times. We explore what North Harbor Stadium has done to ensure its governance structure remains appropriate.

Looking for timely updates to help keep you in the loop about industry issues and the regulatory environment? Sign up for our free e-newsletters and print publications and receive advice from the experts. Subscribing is easy. Just visit hayesknight.co.nz and click on the ‘Register for email updates’ link.

Taxing Times Audit Alerts Business Advisory News

Not losing sight of your longer-term strategies and innovation are also important concepts. Sustainability is even more important in recessionary times. It’s pleasing that the focus is moving from just environmental to a greater understanding of the equally important areas of social and economic sustainability. On the sustainability front, Hayes Knight is delighted to introduce the Audit team’s new Green Star-rated home. Attitude and optimism are crucial to ongoing success. I was fortunate to represent Hayes Knight New Zealand at a recent conference in the US. There, the recession is much deeper and bleaker than here in New Zealand, yet, what struck me was their obvious optimism and conviction that they can make it better. It was summed up by a non-branded billboard I saw on the way to the airport as I was leaving: Recession 101: Bill Gates started Microsoft in a recession.

Waking up in a post-recession world

Sustainability at work

Get ready for the upturn

New growth

Financial governance

Good governance in action

Your sustainability success strategy

Hayes Knight Audit moves into new ‘green’ premises

It’s coming. Are you prepared?

Omni Products gears up for a warmer economic climate

Why you might need to update your business structure

North Harbour Stadium keeps up with the play

News, views & tools for success

Succession strategies

Business advice

Hayes Knight news

Innovation showcase

The last word

Joint ventures and amalgamations – the pros and cons

Not-for-profits and financial statements; tax update

Celebrating outstanding achievements. Out and about

Our clever clients

Craig Fisher Chairman, Hayes Knight New Zealand

Business Improvement News Not-for-profit Updates Newsletter for Schools Sustainability

The information and advice contained in Beyond the Numbers cannot cover every financial situation or requirement. If you have further questions, we encourage you to contact a Hayes Knight business advisor for advice tailored to your specific circumstances. Hayes Knight is an independent member of Morison International and the Hayes Knight Group.

Beyond the Numbers is published for Hayes Knight NZ Ltd by HB Media Ltd. info@hbmedia.co.nz Editor: Deirdre Coleman Designer: ICE Interactive Cover Photo: Kallan MacLeod Printer: Image Centre

succession strategies

future thinking

Waking up in a post-recession world

Amalgamations and joint ventures

Why sustainability will help business success

What are the fish-hooks in using these as succession strategies?

The number one priority for many businesses right now is very straightforward: bouncing back from the recession and getting back to business as usual as quickly as possible. However, as with many things in life, it’s not so clear cut. Many business commentators, especially overseas, are saying that in the new post-recession world businesses cannot continue to divorce themselves from the economic, social, cultural and environmental issues that are emerging around them. In New Zealand too, the market indicates that businesses have no choice but to understand and act on these issues. The best way to do this is to develop a sustainability strategy. This pressure to be more sustainable is coming from employees, customers and international markets, as well as increasing numbers of legislative changes such as the Waste Minimisation Act. In the face of this pressure, businesses often need help to understand the implications and opportunities that exist in a broad approach to sustainability, which includes economic, social, environmental and cultural sustainability. Firstly, it is important to understand that business has a lot to gain from using this broad approach to sustainability. The benefits include: Short and medium term gains: + Business efficiency + Reduced costs + Improved stakeholder perceptions + Competitive advantage + Engaging with employees for both attraction and retention Long term growth and value: + Service and product development + Access to new markets + Collaborative partnerships + Skills development + Health and wellbeing + Brand equity

These outcomes will be appealing for most businesses, but achieving them is not just a case of putting a recycling programme in place or placing “eco” labels on products. It requires building a strategy. Sustainable Advantage uses research conducted with research partner, Perceptive, to identify four guidelines to build such a strategy. Guidelines for developing and implementing sustainability strategies 1. Keep focused on values, value and service – ethics, honesty and providing excellent customer service and value for money are the foundation. 2. Communicate – be open and honest about where you are in terms of sustainability, connect with your communities and find ways to listen to them for opportunities. 3. Take responsibility – take steps towards being sustainable and collaborate to gain trust from customers and employees. Create new thinking and innovation. 4. Cognition and connectivity – Gain a deep understanding of your stakeholders’ needs and help them ‘join the dots’ to understand why you’re doing things in a certain way. Use their language and stories to build their knowledge and fill in the gaps in areas of concern. Above all, educate and inspire them with stories. This shift in thinking away from a purely monetary view of business may not resonate with everybody. It may be seen as too risky or too hard, but to stay ahead of the competition, businesses have to differentiate themselves. There are increasing reasons why well-planned and implemented sustainability strategies will do this for them. For more information on Sustainable Advantage, contact Nick Jones at nick@sustainableadvantage.co.nz

“businesses often need help to understand the implications and opportunities that exist in a broad approach to sustainability”

The recession has caused some owners to delay their succession plans as they focus on survival rather than considering a profitable exit from business. For others, it’s provided an opportunity to change their businesses ownership and succession possibilities, with amalgamations and joint ventures becoming an option to ride out the fiscal storm. However, there can be issues when these operating models are formed quickly, or as a survival strategy that hasn’t been fully worked through. The five most common fish-hooks are:

Agreeing the valuation of the business assets (and liabilities) each party put into the partnership. Establishing the value of fixed assets, the client database, industry and efficiency know-how, stocks, contracts, WIP and software can be sticking points.

Setting shareholder salaries, and establishing a market rate, can cause problems, as can expectations around dividend payouts. A younger shareholder may wish to reinvest profits for future growth, while a retiring shareholder may want to take home as much and as regularly as possible.

Governance. From voting to setting the vision, this may become contentious. Owners who made their own key operating decisions may dislike relinquishing this to a democratic board. Owners should be comfortable with their new business partner, and share their direction and vision.

Succession is a journey, not an event, and often the end-game is the focus, not the steps leading up to it.

In a risk context, insurances are frequently overlooked. What happens if your new partner has health problems or becomes otherwise incapacitated? Agreeing on a model for valuing shares and having appropriate insurance is essential.

Ongoing partnerships with suppliers under this succession pathway may also be contested. Whose accountant, bank or lawyer do you use? Which printer, suppliers, freight company or software provider do you retain?

Bringing together different cultures, procedures and employees. Issues such as pay parity, and a mindset of ‘these guys were once the competition’ must be tackled head on. Expect some fallout. Agreeing on, or at least discussing, the final exit strategy of the new partnership. Will it be short term for one party? How will the value of their equity be determined at that date? Succession strategies should be considered from the day the first dollar is turned.

All of these points hinge on planning. If an amalgamation or joint venture is part of the exit process, all parties need to spend time upfront covering all facets of the business – financial, operational and governance.

walking the talk

Sustainability at work The new Hayes Knight Audit office is sustainability in action. Located in a building refurbished to Green Star NZ standards, Audit is leading the charge in going green, and it’s a move that’s proving highly successful

It’s no secret that Hayes Knight is a proponent of environmental responsibility and sustainable business practices. For this reason, the company wanted an office that would align with these principles, says Chairman Craig Fisher. “Operating in a sustainable manner is a crucial part of the Hayes Knight strategy for building business success,” he says. ”This means integrating a sustainability focus into the systems and processes we use every day, and then supporting our clients to do the same.” “Our working environment is really important to ensure a happy and healthy team, and we want to keep our environmental footprint as sensibly low as possible.” The recent upgrade of One Broadway was designed by architects Warren and Mahoney to meet the New Zealand Green Building Council’s (NZGBC) 4-star Green Star rating. Green Star evaluates a building against nine categories to assess the environmental impact of its site selection, design, construction and maintenance. A 4-star rating signifies ‘best practice’ and final certification for One Broadway is currently under way.

“We weren’t able to change the windows, so we tried to introduce warmth and colour into the scheme to create a light-filled environment,” says Voss. “An integrated approach to the services allowed us to raise the ceilings and enhance the feeling of openness.” Arrow International carried out its own fit-out, while Hayes Knight contracted Aspect Interiors to fit out the first-floor Audit office. Audit Director, Colin Henderson worked closely with Aspect to achieve the desired result for Hayes Knight. The focus was on minimising walls and barriers, maximizing openness and creating versatile workspaces with multiple uses, he says. “The training/boardroom has a moveable wall so it can convert to a large seminar room or entertaining area that the whole firm can use,” says Henderson. “Our mandate was to build for growth. We have ample space for 30 auditors, but we have kept an open plan with maximum desks to provide capacity for around 45 auditors as we grow.” While the Hayes Knight interior fit-out wasn’t designed specifically to achieve a Green Star rating, considerable thought was put into the environmental impact of using certain materials. As a result, Environmental Choice-certified carpets were selected and low-VOC paints and sealants were used throughout. The workstation systems also feature low-VOC materials, and the use of coda files cuts down on the filing space required. To reduce the carbon miles associated with the refurbishment, 90% of the materials used were manufactured in New Zealand.

“It’s a very good benchmark for an office building of this type,” says architect Richard Voss, a member of the NZGBC. “Refurbishing a building and re-using the existing structure and façade makes sense because recycling current building stock is part of the whole green building philosophy and helps earn points for a Green Star rating.”

Significant waste is generated in any construction project, but the waste materials from this refurbishment were sorted for reuse and recycling where possible.

Green features A grey render and aluminium louvres give a consistent, contemporary look to the exterior of the building, and the louvres also help reduce sunlight into the north-facing building, cutting down on the cost of cooling the interior.

“It’s given us some much-needed elbow room on desks, while reducing the noise with better materials and design in the open-plan area,” he says. “The office now provides a hub for Audit, where the teams can gather with a sense of community. The sustainability initiative has provided some common goals to improve the way we work as a team.”

Inside, the entrance foyer features timeless natural materials, such as basalt, timber ceiling battens and white colourback glass.

“Our working environment is really important to ensure a happy and healthy team, and we want to keep our environmental footprint as sensibly low as possible.”

The new building has been a breath of fresh air for the Audit team, says Colin Henderson. Photo b y Ka llan Mac Leo d

In August, the Hayes Knight audit team of 30 moved from Parnell House into new offices at One Broadway on a prominent corner site in Newmarket. The solid, three-level building originally constructed in the 1980s was previously the home of Nestlé, and has been extensively refurbished to accommodate Hayes Knight Audit and ground-floor tenant, Arrow International.

walking the talk

It all adds up Moving into a building designed and built to a 4star Green Star rating fitted our sustainable strategy and complemented Hayes Knight’s new business venture, Sustainable Advantage The team at the new Audit office is leading the charge in sustainability, making a difference in a number of small, but significant, ways: Paper saving – all printing and copying defaults to double-sided. Waste disposal – all paper goes into the shredding bin for recycling. Individual desk bins are out; instead, each row of desks has a single communal bin. Staff eat in the breakout room, not at their desks. This not only eliminates food waste in bins, but encourages inter-office communication. There are bins in the breakout room for recycling different types of waste. Plastic bags are strongly discouraged. Energy savings – lights in the general office, boardroom, training rooms and directors’ offices are switched off when not required. The toilets feature sensor-activated lighting. The signage on the front of the building uses energyefficient LED lighting, and all lights throughout the interior have low-power bulbs. The air-conditioning is programmed to run from 7am-6pm weekdays only. Each air-conditioning unit has its own individual settings that adjust according to the temperature in different parts of the building. This helps reduce power usage. A boiling-water tap supplies hot water on demand, eliminating the need for a hot-water cylinder or kettle. Reusing existing equipment – rather than purchasing new office furniture, desks from the previous audit office were brought over for use in the new one. The new Audit building sustainability initiatives have been such a success that they’ve been introduced into our two other offices. And what better way to launch such a scheme than with a Cardigan Day? Hayes Knight staff donned their warmest, most comfortable and vibrant retro cardies in honour of the occasion. Check out the photos on page 17.

better times ahead

Get ready for the upturn Are economic conditions improving? Now is the time to get ready The media has been full of stories about the recession and how to navigate through it. Many businesses have seen declining sales, reduced profits, tight cash flows and a poor short-term outlook for their business. But now, after more than a year of economic contraction, commentators are talking about signs of green shoots appearing. To take advantage of this opportunity, businesses need to be ready. With a good business strategy and committed execution, difficult times can present opportunities. Market conditions are still tight and sales will take time to recover, but look for ways to: Get your balance sheet in order A drive on efficiency, productivity and margin-protection is critical, but many business owners forget about the balance sheet and focus just on the P & L when making changes. Don’t drain your cash reserves or you’ll lack the funding to take advantage of opportunities. Have detailed strategic and business plans incorporating full cash flows and forecast balance sheets, not just a profit forecast. You need to understand how much it will cost to grow. You’ll have to get the bank and other funding organisations onside. With information and transparency, they’re more likely to buy into your vision and support the plan. On the other side, get on top of your debtors and put resources into collections. You can squeeze the extra cash out of your balance sheet by reducing stock and selling up surplus assets. Review your governance structures New Zealand SMEs often discount corporate governance as expensive or complex. Good corporate governance is

‘Make the tough calls, put the plans and strategies in place, lean out the organisation, and prepare to take advantage of the opportunities as they present themselves.’ simply a mechanism for accountability – stating what the company will do in a specified time frame, and then reporting the results. Implementation of a governance structure involves setting the plan, creating templates for monthly reports, delegating responsibility and providing a forum for feedback. Successful boards may employ an independent adviser who can bring experience, discipline and objectivity. Innovate New Zealand is renowned for its culture of innovation. We need to innovate now more than ever, break the cycle and look for better, smarter and more effective ways of doing things. As the economy picks up, this will be the springboard to success for many businesses. If you’re feeling the pressure, so will your competitors. This may present some innovative acquisition or merger opportunities. A better-capitalised company with a larger revenue base will provide more stability and resilience for future investment. Take charge Businesses need a leader now more than ever. Make the tough calls, put the plans and strategies in place, lean out the organisation, and prepare to take advantage of the opportunities as they present themselves. They will come along; after all, this is just a cycle.

Going for growth To help our clients take full advantage of the green shoots that are appearing in the economy, Hayes Knight has developed the ‘going for growth’ packages. The packages are like adding fertiliser to your garden, we can help you identify and cultivate the opportunities that are emerging for your business in your current market. To find out more, visit hayesknight.co.nz/tools-forbusinesses

branching out

New growth Expansion into the burgeoning gardening-products market has helped a small family-owned business flourish in a barren economy It’s been a long, bleak winter for many New Zealand companies, and one most would rather forget. But the temperatures are rising and, with the arrival of spring, come signs that the economic climate could be warming up too. Unlike many businesses, Auckland-based Omni Products has been fortunate not to have felt the full force of the recession, and has recently taken steps to prepare for the return of better days. Recessionary times have an interesting effect on consumers, bringing out a behaviour known as ‘nesting’. Rather than going out to dine, play and shop, we tend to focus on improving our home environment to make ourselves feel more comfortable and secure. Along with reading, knitting and cooking, gardening and small DIY jobs feature strongly. And that has a boon for a company like Omni Products. Gardening went out of fashion 10 or 15 years ago, says codirector Neville Dodds. “But it’s coming back into vogue now. Growing your own vegetables has become very popular, and that’s been good for business.”

In April, Dodds and sales executive Gail Smith travelled to one of the world’s largest trade fairs in China to source new product lines for the expansion. Omni Products imports the bulk of its range from China, Malaysia and Slovenia, and in the last three years, has also looked to India and Pakistan for quality leather gloves. “It’s all worked brilliantly. We knew what we wanted to buy, and then presented our budgets to the bank to get their support, before showing sample stock to our customers. We’re all really proud of these new products and our clients have been very happy with our new range.” Dodds believes the key to success has been knowing their market and being prepared to take a risk when everyone else was hunkering down. “We always had a tight overhead anyway, and we didn’t have much fat to start with, so trimming that back has been next to impossible. But we’ve made some small changes where we could,” he says.

A decade ago, Neville and Anne Dodds took over the 20-year-old business whose focus has been as a glove wholesaler, selling everything from gardening, trade and household gloves to thermal and disposable medical gloves, along with a few safety products.

“Our costs have gone up a little, mainly because of the dollar. When it dropped to 50c, that had major repercussions for us, like all importers. We were struggling to absorb as much of it as we could, rather than putting our prices up in a flat market. Our goal is to keep our market share. The rise in the dollar has been a real benefit.”

Omni Products supplies its products to garden centres around the country and has about five house brands.

Conducting business honestly and respecting their customers is a fundamental for Omni Products’ directors.

“Our predominant market is DIY, and that has improved quite a bit over the past year. However, we’re also making quiet headway with industrial distributors. The industrial market has lost a lot of its gloss because industry itself has been finding things very hard.”

“You can’t change your position at the last minute in a recession and expect people to come to you. In the good times you need to be good to your customers. We’re very fortunate that we can go to our customers and write our own orders. We treat them the way we’d like to be treated – we want ongoing monthly orders so we pride ourselves on our ethics and working with our customers.”

In 2009, at a time when others were hanging on and hoping to weather the economic storm, Omni Products made some radical moves after deciding to review its business plan and update it for the changing market. “Our Hayes Knight Director had been trying to convince us to expand our product offering for quite some time,” says Dodds. “We finally did it because of the recession. Others were pulling back, but we felt we needed to forge forward. He is a hard taskmaster, but that’s been good for us.” As a result, Omni Products decided to expand its operations by appointing a sales executive and branching out into a new range of gardening tools and accessories.

Confident about the future and the new direction Omni Products is taking, having done their homework, Neville and Anne Dodds aren’t concerned about the extra financial outlay. “We’re taking on extra storage for all the additional stock, and these new products have given us even more confidence,” says Dodds. “The extra outlay is all in the budget. And having Hayes Knight do our monthly accounts ensures we know exactly where we stand financially, which eliminates any nasty surprises.”

“Our Hayes Knight Director had been trying to convince us to expand our product offering for quite some time,” says Dodds. “We finally did it because of the recession. Others were pulling back, but we felt we needed to forge forward. He is a hard taskmaster, but that’s been good for us.”

financial governance

Financial governance in today’s economic climate The economic climate over the last 12 to 18 months has put pressure on most businesses, forcing many boards to change their historical operating model Debt covenants established in stronger trading periods are now being stretched, and we have noted a significant change in the approach taken by lenders (particularly the major trading banks) when reviewing current facilities. We do not expect this to change anytime soon. Positive cash flow has proved critical as equity ratios have eroded and higher profit multiples on interest cover become harder to achieve. Our business advisory division has noticed an increase in the number of boards requesting an extension of working capital facilities, holidays on principal loan repayments, and a relaxation on EBIT covers. Unsurprisingly lenders have revised their approach in assessing a customer’s ability to service existing debt. Hayes Knight’s relationship with the major trading banks has helped us understand the criteria lenders use when reviewing loan balances and deciding whether to continue with existing funding lines. Bankers are focusing on four key risk areas: 1. Business – the actual entity being funded and its trading strength. 2. Industry – the market niche in which the business operates, and the expected timeframe for that industry to recover. 3. Financial – the level of debt and servicing required, with emphasis on stability and performance ratio analysis. 4. Management – the management team driving the business and its ability to practice strong corporate governance. A stronger focus has been placed on management risk and the board’s ability to prepare timely financial statements from which appropriate decisions can be made. Historically, many banking covenants have included the requirement to provide annual financial statements to their bankers within 90 days of year-end. With the strong trading environment of recent periods, enforcement of this covenant has been relaxed,

case study

North Harbour Stadium up with the play Not-for-profit organisation North Harbour Stadium recently produced an updated governance manual for the business’s operational, financial, planning and budgetary matters North Harbour Stadium CEO, Brendon O’Connor says the organisation felt it was timely to review the way it operates at a governance level. “We still have an established trust deed and the way our independent trustees are appointed hasn’t changed. But our updated governance manual outlines the executive responsibilities at an implementation level, the roles and responsibilities of the board of trustees, and where the demarcation is between policy, strategy and execution work,” he says. The reasons for the review were twofold, he says. As well as changes in personnel at a trustee and executive level, the upcoming change to the governance of Auckland, whereby North Shore City will no longer exist, impacts on North Harbour Stadium as a CCO (council controlled organisation). “We’ve reviewed our strategic plan and, in doing so, identified key risks and opportunities, and we are preparing a five-year business plan.

and extensions have generally been granted. But the current financial environment means this reporting covenant to the bank is being more rigorously exercised, and it’s a strong signal to the bank that good governance is being practised. Bankers are assessing the following qualities with respect of management risk:

+ Preparation of monthly management accounts (fully reconciled) on a timely basis, i.e. within 15 working days.

+ Updated financial modelling that reflects trading in the current economic climate and extends out for a period of two to three years. These models should include a fully integrated profit and loss, cash flow, and balance sheet prepared on a monthly basis so that highs and lows can be identified.

+ That the board has undertaken strategic planning, and this is fully documented and relayed to the team for implementation.

+ The board has made changes to the operating model to create efficiencies, improve cash flow, reduce unnecessary overheads and stay competitive. This refocus by the banks is a timely reminder that senior management should practice these strong financial principles of governance, which are often the cornerstone to success and business longevity.

We’ve built up a strong institutional knowledge but many of our policies and procedures were recorded in an ad hoc manner, or not recorded at all,” says O’Connor. “We now have a 20-year maintenance plan, and we have set up trustee subcommittees where people with relevant skills help the executives on projects, if needed. We have also made key process explicit in an operational and financial planning context.” As a trustee of North Harbour Stadium and Director of Hayes Knight, Matthew Bellingham was instrumental in assisting with the new governance policy, says O’Connor. “As a director of many client companies, Matthew has seen all manner of governance structures and his advice was invaluable. “We still have community objectives in our charter, and grounds and assets that we don’t charge for but we also have commercial goals and we must make a healthy surplus so as to maintain the assets. We’re operating with business disciplines and providing commercial and community services, and the disciplines around governance policy are important to our success.” Other benefits include improved monthly financial reporting, and more timely and better presented information so the trustees can see how the organisation is tracking, for example, understanding its own margins properly. “We’re a diversified business in terms of revenue streams, and we provide some of our services at zero rate, so understanding what that’s costing us is important. In revisiting our governance procedures, we’re making explicit some of the processes that we run in the business, and planning further forward.”

business advice

Hayes Knight team news

Hayes Knight Director Matthew Bellingham speaking at the 12th annual Westpac Enterprise North Shore Business Excellence Awards

Telling the whole story

Outstanding achievements Hayes Knight supports Hall of Fame

Recent media debate has highlighted the importance of how financial statements tell a story for not-for-profit entities The purpose of financial statements Corporate financial statements act like a scorecard showing owners what they own and owe, and how profitable (or otherwise) their operations were for the period. These statements are also of interest to other parties such as banks for continued funding, or investors looking to make buy, sell, or hold decisions. The accounting treatment and disclosure in financial statements should be of a common approach and widely understood. That’s where ‘generally accepted accounting practice’ (GAAP) comes in, outlining approved financial reporting standards that specify the allowable accounting treatment and disclosures required. Corporate compliance with GAAP is mandatory, and is enforced by regulators such as the Companies Office and Securities Commission. Not-for-profit entities The not-for-profit sector differs from the corporate world in some subtle respects. Most New Zealand not-for-profits aren’t required to comply with GAAP – although many try to – and there isn’t the same regulatory checking to enforce this. What’s more,

Tax update The July 2008 Tax Bill introduced major changes to the definition of ‘associated persons’, significantly widening the scope of who is deemed to be an associated person. The Bill, enacted on 6 October 2009, replaces the previous definitions of ‘associated persons’ – which related to specific transactions (ie. dividends, FBT, land, international tax, petroleum mining) – with one standard definition that applies to all. The new associated persons definition is modified slightly for land transactions, which

many entities in the sector struggle to access or afford the same level of accounting expertise. This has led to a variable quality of GAAP compliance in the financial statements of New Zealand not-for-profits. Not-for-profits’ financial statements are useful to show the assets, liabilities and results for the organisation. But many looking at these financial statements are more interested in how well they’ve performed in their overall not-for-profit aims or charitable purpose. As a result, the financial statements of notfor-profits tell the entity’s story and show its successes and worth to society. While GAAP specifies some key elements financial statements must contain, entities can add extra disclosure to help readers understand their situation. The only proviso here is that it accurately tells their story rather than embellishing it.

Key Lessons

2. Non-cash support (eg volunteer time) is a common feature of the not-for-profit sector. Organisations should measure this and disclose it clearly in their financial statements. 3. What most not-for-profits do isn’t just measured in dollars, so a standard set of GAAP-compliant financial statements won’t be enough. Not-forprofit organisations must develop, measure, and report clear KPIs that demonstrate their worthwhile achievements.

Hayes Knight acts for many not-for-profit entities that span the entire sector, and is passionate about helping them succeed.

effectively narrows the definition for transactions involving land. The new definition also replaces the previous definition of ‘related person’. The new definition closes perceived loopholes in the previous definitions, and introduces three new tests: the aggregation test, the tripartite test, and the trust test. The effect of the new associated persons definition is that land dealers, developers and builders are taxed on all their land sales and that (subject to the 10-year threshold and certain exemptions) dealers, developers and builders cannot hold investment properties

Colin Harvey is widely known for his tremendous contribution to the New Zealand agricultural industry through Ancare. And his efforts were recognised recently when he was inducted as the 2009 Enterprise North Shore Hall Of Fame Laureate.

1. Not-for-profits must be clear in their messages and show how well they are delivering with the public donations they receive.

on capital account. Those who restructure their affairs so as not to be caught by the new associated persons definition will need to be mindful of the general antiavoidance provisions. In general, the application date for the new associated persons definition is the 1 April 2010. However, for land transactions, the new definition applies to property acquired on or after 6 October 2009. The only exception to this is in relation to section CB 11 (builder disposing of land within 10 years of completing improvements), where the new definition applies to property on which improvements

are started on or after 6 October 2009. Existing property that was owned prior to 6 October 2009 will not be subject to the new associated persons definition (except for builders, or their associates, who commence improvements to property after 6 October 2009). The new associated persons definition makes it much more difficult for structures to be put in place that are not associated. Those who hold property on revenue account, should carefully consider the structure being used for any new property purchases.

Chairman of the Board of Trustees for Enterprise North Shore, Ian Watson, acknowledged Colin and his wife, Mary, in front of an audience of peers, past laureates, councillors and Mayor Andrew Williams.

Business excellence on the shore On Friday 28 August, North Shore businesses celebrated the 12th annual Westpac Enterprise North Shore Business Excellence Awards at North Harbour Stadium. With a record number of 150 entries in 2009, (a 30% increase on last year), the competition was tougher than ever As part of our ongoing support of excellence in the business community, Hayes Knight has once again played an integral role in the Awards, with Matthew Bellingham appointed Convenor of Judges for the seventh time. He estimates his judging team put in more than 500 hours to select the finalist and winners of the 12 categories. The volcanic-themed evening was attended by nearly 600 guests. North Shore technology company Ingram Micro New Zealand Ltd took out the prestigious Westpac Supreme Business Excellence Award for 2009. The company also won two of the 13 category Awards. “We were particularly impressed with Ingram Micro’s environmental consideration in their EcoBuilding; their immense employee support systems and their strong ‘give back to society’ ethic,” says Matthew Bellingham. Hayes Knight congratulates all the category winners at this year’s awards. The overall standard of all entries was the best we have seen to date.

A 2008 recipient of the Insignia of an Officer of the New Zealand Order of Merit, Colin Harvey established Ancare International in 1985 and is a respected leader in the animal-health industry. Ancare supplies animal healthcare products to the New Zealand market and is a growing force internationally. The Enterprise North Shore Hall Of Fame was established in 2004 to acknowledge and celebrate exemplary efforts in North Shore business and the community. Laureates have had a positive impact on economic growth and business success, each embodies an entrepreneurial spirit and local-mindedness. Hayes Knight is proud to sponsor the Hall of Fame awards as part of our ongoing support of excellence.

Congratulations to… Sir George Fistonich, owner and managing director of Villa Maria Estate was one of only 85 to be knighted this year and the first ever to be acknowledged for services to the New Zealand wine industry. George confirmed his Knight Companion of the New Zealand Order of Merit by adopting the prestigious title of Sir. Villa Maria has been a longstanding client of Hayes Knight and we are delighted with this acknowledgement of Sir George’s efforts. Hayes Knight client Chris Pescott, from Perceptive was announced as a finalist in the 2009 New Zealand Ernst & Young Entrepreneur Of The Year Awards on August 13. Only 16 of New Zealand’s most successful entrepreneurs are selected as finalists. To reach this stage, they must display leadership, creativity, business acumen, perseverance, and an unflinching determination to succeed.

out and about

Hayes Knight team news 1

Hayes Knight wins Sustainable Business Network Awards Hayes Knight is celebrating after winning the ‘Emerging Large and Corporate’ category in the Northern Region Sustainable Business Network Awards in early September

The Sustainable Business Network represents more than 700 organisations throughout the country, ranging from SMEs and not-forprofits through to large businesses and corporations. The SBN Awards recognise businesses demonstrating leadership by embracing innovation, sustainability and regenerative practices in their day-to-day operations. The Emerging Large and Corporate category is for businesses with more than 20 employees that actively began implementing sustainable actions within the last two years. To enter the awards, Hayes Knight participated in the SBN’s ‘Get Sustainable Challenge’, which covers eight areas of sustainable business practice. Our strategic thinking and integration of sustainability into all areas of business services impressed the judges. They noted our strong understanding of our unique points of difference, and Hayes Knight’s potential to drive change in all four pillars of sustainability. 9

”With staff and client engagement mechanisms and internal sustainability auditing, Hayes Knight is shaping up to be a sustainability leader in accounting and financial services,” they said.

Chairman Craig Fisher is clear on the business rationale for sustainability. “To help our clients and ourselves succeed in a world of increasing social, environmental and economic pressures, we recognised that we need to go beyond the numbers and understand the tactical and strategic benefits of sustainability,” he says. “The accounting industry has a huge amount to offer in the sustainability arena and we see this as a great opportunity. While it is not always easy, we are continually challenging ourselves to think and act differently so we can help our clients succeed”. Nick Jones, Director of Hayes Knight subsidiary company Sustainable Advantage has managed the strategy to date. “The senior management were adamant that Hayes Knight had to improve its own sustainability before it could show clients and the wider market that we are living our values and taking a leadership role in this area.” We’re delighted with this acknowledgment of our commitment to sustainability, and are proud to be the first accounting firm to win an SBN award. Hayes Knight is now a finalist in the national NZI Sustainable Business Network Awards, to be announced on November 12. We’ll let you know how we go.

Peta Fraser from Express Couriers presents Nick Jones and Craig Fisher with the award for the Emerging Large and Corporate category at the Northern Region Sustainable Business Network Awards. Express Couriers won the category in 2008.

Name Our Swift competition winner Congratulations to Derek Jones from Designlab for providing the winning entry for the Name our Swift and Win competition. Derek chose the number plate B3YOND to fit with the new Hayes Knight tagline ‘Accountancy beyond the numbers’. For his efforts, Derek has won two bottles of Villa Maria wine. A big thanks to everyone for your suggestions.

1 In July, Craig Fisher and 80 delegates from around the world attended the Morison International conference in Philadelphia. While there, he took time out to pow-wow with friends at the National Constitution Center at Independence Hall. 2-4 Cardigan Day on July 10 saw staff resurrect their best woollies to celebrate the launch of the Hayes Knight Sustainability Live initiative. 5-7 30 Hayes Knight staff braved the cold and mud in early July to participate in the Tough Guy & Gal Challenge day held just south of Auckland. Proving they’ve got what it takes, the courageous bunch tackled an obstacle course, crawled under barbed wire, slid down banks, ran through tyres, climbed hills and waded through a river of mud to complete the course and earn a well-deserved cold one. 8-12 At the Hayes Knight mid-year party, staff were practically unrecognisable as they donned their best Westie gear for the Outrageous Fortune themed event. Director Barry Hare revealed his uncanny resemblance to Ted West. And who knew that there were so many animal-print dresses, tight mini skirts, mullet wigs and Motley Crue T-shirts lurking in the back of the Hayes Knight team’s wardrobes? Scary!

the last word

innovation showcase

Hayes Knight is proud to be assisting and advising companies at the leading edge of their industries. Here, we introduce three such businesses, and the innovative ideas that are helping to make them stand out from the crowd Go Virtual Medical Ltd

What are you driving?

Founded: 2003 by a group of surgeons, physicians and animators. Innovative product: Go Virtual Medical has developed an integrated simulator that allows users to learn surgical and clinical procedures in virtual reality. The package features text, anatomy, video and simulation, synchronized by a dynamic timeline. This product has been in development over the past three years, and Go Virtual Medical is now poised for commercialisation and international growth.

I notice that the non-business-owning, secure-salaried journalists have got a new tune to sing. We’re starting to read about ‘green shoots’, ‘turning the corner’, ‘the road to recovery’, or perhaps the most over-used cliché ‘seeing light at the end of the tunnel’.

“International market reaction to the prototype has been very favourable and we’ve had considerable support from the New Zealand Government, the University of Auckland, the Auckland District Health Board, the Royal Australasian College of Surgeons, and the IceAngel group of seed capital investors.” – John Windsor, Director, Advisory Chairman.

Optima Corporation Ltd Founded: 1998 by Prof David Ryan, Dr Andrew Mason and Dr Paul Day. Innovative products: Optima Corporation provides world-leading optimisation and simulation solutions for the emergency services, airline and health industries. Its products, Optima predict™ and Optima live™ are simulation-based planning and dynamic deployment software packages designed to reduce business costs and improve operational effectiveness. For example, Optima live™ helps emergency-service dispatchers deploy vehicles more effectively and reduce response times. Optima’s crewrostering software has saved Air New Zealand $NZ15 million annually. “Our products are being implemented around the world and are changing the way emergency services plan and operate their business. Our future plans include encompassing other public safety organisations such as fire and police, and offering additional functions for emergency services. Operations research can be applied to other industries, and Optima already has a pilot optimisation solution for hospital theatre scheduling.” – Tim Lynskey, Sales Director.

Celsias.co.nz Established: 2009 by HB Media and Celsias.com Innovative product: Celsias is a new social media site that lets New Zealand individuals and companies share their sustainability initiatives, ideas and stories. Users can read the latest news and opinion, and see what other companies are doing to advance their sustainability programmes. They can start their own actions and pledge to commit to initiatives, as well as showcasing their green products and services. Celsias is a powerful online tool that combines social networking, free promotional opportunities, news, and the chance for users to make a difference. “We’re thrilled to be bringing Celsias to a Kiwi audience. HB Media is pioneering a lot of sustainable products such as Good magazine and carbon neutral publishing. We’re hopeful that Celsias will provide an opensource forum for business people to share ideas and best practice about sustainability“ – Vincent Heeringa, Director of HB Media.

Business Booster If you’re looking to boost the numbers in your business then this workshop is for you. Part of the strategy for a successful business is understanding the key drivers of your business and knowing how to measure and improve them. In fact interpreting the numbers is the first step towards unlocking your business potential. By coming along we guarantee you will get as excited about the numbers as we are. For information on upcoming workshops visit, hayesknight.co.nz

Maybe those journos need to spend more time in the SME boardroom where they’re still more likely to hear a rendition of Supertramp’s 1979 classic ‘Take the Long Way Home’. Indeed, our business owners are likening today’s business journey to a ride in a 1972 Valiant Regal – it’s a rough ride that’s costing more to run than desired. Regardless of the differing opinions that are being debated across our lunchroom tables, lessons from the past are being learnt again. Why is it that we have to be taught them several times before they sink in? With the squeeze put on businesses by the banks, ageing debtors ledgers (or bad debts), fall in turnover, reduced margins and growth in unsaleable or surplus stocks, we’re witnessing poor liquidity and exposure to poor balance sheets. It seems that most businesses have been focusing on profitability and performance at the expense of stability. That is, the profit and loss has had all the attention and the balance sheet has been the poor cousin. Many of us have stripped our companies of equity to finance our personal assets. Our cash cow (the business) may have been milked one too many times. Our lenders are now talking about equity ratios, and the profitability ratio has been refocused towards interest cover. A strong balance sheet is the launching pad to tomorrow’s opportunities and stability is today’s business oxygen. This is a lesson that experienced business owners will recall from yesteryear and one that we should all store in the memory bank. In respect of our monthly management reporting of KPIs – if you’re not doing this in today’s market, then I suggest you start – we need to look at profitability, performance, stability and asset management rates. Strategic planning and financial modelling for future periods (you must be doing this) should incorporate these ratios so that we can learn what is ahead of us and where weaknesses may lie. This, in turn, may lead us to review those plans, and avoid the turn that ‘takes the long way home’. As for the Valiant Regal; it’s not known for its performance, but it’s strong, stable and still around – something to think about.

—Radar

You know your numbers...

but do you know their meaning?

Keeping your business future fit is about being better equipped to make bold and powerful financial decisions. At Hayes Knight, rather than just work the numbers, we interpret them. The result is a more empowered, knowledgeable client able to be proactive with the next steps of their business. To find out more, visit hayesknight.co.nz